Blue Ridge’s largest new position was in American International Group (NYSE:AIG), with the fund initiating a position of 10.4 million shares. The insurer is still working through some poor market sentiment after getting through 2008 not quite as well as Blue Ridge did. However, it is becoming a trendy value stock for a number of investors, and Griffin and his team are apparently among them. According to sell-side estimates, AIG trades at 10 times 2013’s expected earnings and a five-year PEG ratio of 0.4. According to the company’s internal valuations of its assets, the P/B ratio is 0.6. Its revenue and earnings were up last quarter compared to a year ago, suggesting that the business may be recovering on a fundamental level.
HCA Holdings (NYSE:HCA) was another top pick from Blue Ridge, as the fund increased its stake in the $12.5 billion market cap hospital operator by 11%. It is another stock that looks cheap on a quantitative basis, as it trades at 8 times forward earnings estimates and a five-year PEG of 0.7. We examined HCA Holdings in early August and found that many other hospital stocks were trading at low multiples as well, and it is true that there is some policy uncertainty in the industry. Blue Ridge’s increased position indicates that it believes the value is worth the risk.
We had also written an article in August about JP Morgan and Citigroup being good buys compared to Wells Fargo, and looking at Blue Ridge’s 13F we see an (unchanged) 6.1 million share position in JPMorgan Chase (NYSE:JPM). JP Morgan is also a potential value stock trading at 9 times trailing earnings, 8 times forward earnings, and at 0.8 times the book value of its equity. Its brand has been tarnished by the London Whale losses, but we think that this poor sentiment will fade in time and that large losses in the future are little more likely at JP Morgan than at other banks. We think Griffin and the rest of his team were wise to hold on to the stock.
Blue Ridge added shares of Sirius XM (NASDAQ:SIRI) in the second quarter, bringing its holdings to 78.8 million shares. Liberty Media (NASDAQ:LMCA) is attempting to take over Sirius, and an investor in the company would probably have to be betting on this as Sirius’s fortunes are not expected to continue. Analyst expectations for 2013 are for only 10 cents per share in earnings, implying a forward P/E of 26.
We think that on their own JP Morgan and HCA are good value plays, though perhaps other companies in their industry might be a better fit for what an investor is looking for- Citigroup looks cheaper than JP Morgan, and a number of smaller hospitals are at a similar price as HCA but have emphases on different segments in healthcare provision. As leaders in their industry, however, we can see why Blue Ridge prefers the companies they picked. AIG deserves a close look, as it fits the profile of a company which is hated enough by the markets that it has temporarily departed from its fundamental value and in the future might see both earnings increases and a P/E expansion.
